Interest on retained excess deductions reconfirmed
It has been two years since the Supreme Administrative Court issued a breakthrough decision in the Kordárna case, confirming that the tax authority must pay interest on retained excess deductions to the taxpayer. Despite the court’s decision, tax administrators still do not pay interest on retained funds automatically and taxpayers often have to summon up great strength to recover their funds. Recently, the SAC again had to stand up for taxpayers by defining the thresholds within which interest on retained excess deductions is charged.
In recent judgment no. 9 Afs 225/2015, the SAC judges categorically refused the financial administration’s argumentation that the above case law represents an inadmissible (judicial) law-making. Referring to the SAC’s previous judgments as well as the Court of Justice of the European Union’s decision in the Kovozber case, the judges explicitly reconfirmed the taxpayers’ entitlement to interest.
In many aspects, the SAC clarified or confirmed the parameters for charging interest on excess deductions. According to the court, the tax authority’s interest-free examination of excess deductions should take three months in simpler instances. This should allow sufficient time to remove any and all doubt. The method in which excess deductions are examined does not matter. The SAC judges also believe that it would not be fair to differentiate between a procedure to remove doubt and a tax inspection. And, finally, the judges expressed their opinion on the amount of interest. A 14% interest charge a year should be used until the end of 2014, as at that time no explicit legal regulation had been in force to deal with such cases. As a result, interest on refundable overpayment as the closest legal concept should be applied. The court did not voice its opinion on the adequacy of 1% annual interest charged in compliance with a new legal regulation effective from the beginning of 2015. We may expect to hear about it in another cassation complaint still awaiting the court’s decision.
The SAC emphasised that interest on retained excess deductions does not represent a punishment of the tax authority but a tax entity’s compensation for a financial disadvantage. If the tax authority has been retaining your excess deductions for a long time, or has done so in the past, we will be happy to help you undertake steps to receive appropriate compensation.